Half Year 2022 Spire Healthcare Group PLC Earnings Call London Sep 9, 2022 (Thomson StreetEvents) -- Edited Transcript of Spire Healthcare Group PLC earnings conference call or presentation Thursday, September 8, 2022 at 8:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Angus Prentice Spire Healthcare Group plc - Interim Head of IR * Harbant Samra Spire Healthcare Group plc - Group Financial Controller & CFO * John Forrest Spire Healthcare Group plc - COO * Justin J. Ash Spire Healthcare Group plc - CEO & Executive Director * Peter Corfield Spire Healthcare Group plc - Chief Commercial Officer ================================================================================ Conference Call Participants ================================================================================ * Blanka Porkolab Barclays Bank PLC, Research Division - Research Analyst * Charles Robert Weston RBC Capital Markets, Research Division - Analyst * David James Adlington JPMorgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research * Grace Lee Jefferies LLC, Research Division - Equity Associate * Kane Slutzkin Numis Securities Limited, Research Division - Research Analyst * Miles Dixon Peel Hunt LLP, Research Division - Analyst * Victoria Lambert Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [1] -------------------------------------------------------------------------------- So good morning. It's 9:00. So we will kick off. You're all very welcome to our interim results presentation for the half year ended 30th of June 2022. I'm Justin Ash, Chief Executive of Spire. Having seen many of you in our new offices in Dorset Rise, which was a pleasure. So recently, for our capital markets event in late June, we've decided to revert to a Zoom format for this event which enables more people to join. Angus Prentice, our Interim Head of Investor Relations, will manage the Q&A session, which will follow this presentation. (Operator Instructions) So I'm delighted to say that as you can see, Jitesh Sodha, our CFO, has made a fantastic recovery after the accident here unfortunately suffered earlier in the year. He's with us today. I'm delighted to say he will be fully taking out the reins again from next week. Great to see you back Jitesh. Harbant Samra has covered Jitesh duties [amporably] in his absence, and he'll be presenting the details of the numbers shortly today as they cover the period when he was acting CFO. We've also announced today that he's promoted to Deputy CFO. So Harbant, thank you and congratulations. So I'll kick off with a brief reminder of our strategy and overview of how we performed in H1 and how H2 has opened. Those of you who joined us for our Capital Markets event in June will remember that our purpose is to make a positive difference to people's lives for outstanding personalized care. This is lived in our business and drives our actions as the populations health care needs change with rising NHS waiting lists and the impact of the pandemic. Our aim is to help meet those needs by running great hospitals and developing new services. As you can see here, there are five pillars to the group's strategy. To continue growth in our existing hospitals, maintain our strong quality and safety credentials in which we've invested so much in recent years. As a people business to recruit, retain and develop a great workforce, as a responsible business to champion sustainability and to expand our proposition developing new services, which meet the new and changing needs of patients and the population in today's environment. Through this, we will deliver strong financial performance and improving shareholder returns. Now having talked about the different elements of this strategy just 2 months ago, I don't propose to go into detail of each of these statements. I will focus on the headlines of our achievements in H1 with some more detail on specific projects after Harbant has expanded on the numbers. Turning to that review. We've made good progress during H1 and I'm pleased with the way the business is performing. In summary, we delivered on our guidance EBITDA was up compared with H1 '21 and the first half of the last pre-pandemic year 2019. Revenue was up compared with H1 '21 and the first half of 2019, especially private. Our savings and efficiency program is progressing well. Our cash position is strong, and our leverage ratio is reducing. I'll now look in a bit more detail on what is driving our current performance. The backdrop, of course, is of continuing rises in NHS waiting lists and a sustained switch and consumer attitudes to private hospital care. The most recent figures show waiting lists of over GBP 6.7 million, according to our research, 60% of our target audience are now more likely to consider using a private hospital than they were before as a result of growing NHS waiting lists. This is resulting in continued strong demand. Inquiries from self-pay customers have continued at the historic high levels we've seen since the start of 2021. The significant new news from this half is at PMI having been initially relatively slow to recover post pandemic has rebounded strongly during H1. We are now seeing greater PMI revenue compared with the pre-pandemic period, and this growth is accelerating. In our NHS work, we are seeing good levels of commissioning coming mainly through ERS. We've worked with a local trust to help achieve the government's target of treating by the end of July, all NHS patients who waited longer than 2 years, and we continue to focus on more complex work and on orthopedics. We've improved margins from 2021 levels to 17.7%. As you will recall from Capital Markets Day. This is through a model of focusing on private income, increasing ARPC through complexity and pricing, plus an efficiencies program. This program is on track as is our work on minimizing supplier price rises through smart procurement and our energy commodity prices are, as you'll recall, hedged until 2024. COVID , unfortunately, as we continue to emphasize continues to bring short-term but material disruption to the business. the high prevalence of the Omicron variant in the community at the start of the year and again in March and May, June were reflected in patient cancellations and increased colleague and consultant absences. Which had a knock-on effect on capacity. The COVID impact during the period was GBP 25 million. This was higher than we planned for. And it is a sign of the robustness of the business that despite this cost burden performance was in line with expectations, but of course, it ate into some upside. COVID continued to impact adversely on the business during July, when COVID levels in the community were as high as they were in January and March, with the removal of all social distancing and mask wearing in society and in the NHS, this proved to be the biggest impact we've seen since 2020. On a typical day, we would lose 20% of bookings and then rebook 10% for a 5-week period. However, even in this tough month, EBITDA was above 2021 levels. We then worked really hard to recover in August and August activity bounced back strongly. The underlying business is looking very resilient. Our good progress in H1 means that we continue to expect to deliver in line with our guidance and see good revenue growth and continued EBITDA growth. I'm also delighted that our CQC scores rose in the first half. 98% of our respected hospitals and clinics are now rated good outstanding or the equivalent in Scotland and Wales. Our patient satisfaction scores show that 96% of patients rate their experience is good or very good with 92% saying their care was outstanding. With the operational background I've described, this was a real achievement for all our teams. In summary, the first half saw good progress, thanks to quite remarkable efforts by our colleagues and I'd like to thank them and our consultant partners for all their hard work and commitment as ever. Thank you, and I'll now turn to Harbant to go through the financials in more detail. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [2] -------------------------------------------------------------------------------- Thank you, Justin. The group has made very good progress in the first half of 2022, and it is my pleasure to present our results. As many of you will know, comparing H1 2022 against the prior year, it's difficult owing to the business impact of the NHS COVID contract in the first quarter of last year. Therefore, I will be referring to 29 figures -- 2019 figures as well as those for 2021 to aid comparison. I will start with revenue. This grew to GBP 597.9 million for H1 2022. And compared with revenue of GBP 491.6 million in 2019 and was driven by the continued strong performance of our private business. The momentum in revenue growth during the second half of 2021 has been maintained in the current period. Total revenue during the current period has grown by 9.1% compared against the second half of 2021 and demonstrates that the demand for our services has remained strong. EBITDA for the 6 months stands at GBP 105.8 million and represents significant growth compared against the H1 2019 outcome of GBP 96.8 million. We are pleased with the progress the group has made and the EBITDA is in line with our plan. The financial impact from COVID disruption has remained material during 2022, and I'll share more information on these costs later. The group achieved an adjusted EBIT of GBP 54.6 million this compares with GBP 51.4 million in 2019 or an increase of 6.2%. Adjusted profit before tax was GBP 8.6 million for the current period. The adjusted profit before tax figure includes a one-off noncash charge of GBP 3.1 million relating to the refinancing of the group's lending facility. We've also grown EBITDA margin for the first 6 months to 17.7%. This compares to 16.1% for 2021 full year. This margin is stated before taking into account COVID-related costs, which during the current period have reduced EBITDA by GBP 25 million and compared with a full year cost of GBP 53 million for 2021. After adjusting for these additional costs, the margin for H1 2022 increases from 17.7% to 21.9%. We've continued to make significant investment in the business with CapEx of GBP 38.8 million during the period. This figure aligns with our targeted range of 6% to 7% of revenue. Our adjusted free cash flow of GBP 23.7 million for H1 2022 is in line with our plan. The group has continued to be highly cash generative with an EBITDA cash conversion rate of approximately 91%. Net bank debt stands at GBP 227.8 million and is comparable with the 2021 year-end outcome. And as at 30th of June 2022, the group held cash of GBP 95.8 million. This figure is stated after paying down bank debt in Q1 2022 by GBP 100 million, down to GBP 325 million. The group's leverage ratio has again fallen. It is now down to 2.2 which compares to 2.3 at 2021 year-end. This ratio is now at its lowest level since 2016. The growth in revenue has been driven by a strong performance in our private payer groups and in particular, self-pay. Self-pay revenue was sharply up by 34% in compared with H1 2021. The 2021 figure was already 50% up on H1 2019 as the self-pay market expanded after the major peaks of the pandemic and our contracts with the NHS came to an end. PMI revenue grew -- growth rebounded strongly in '22 compared to the pre-pandemic -- strong start to 2022 and inquiries have been [equal] period, which demonstrates that the self-pay market remains strong. It is also good to note that the conversion rate has remained steady. As you can see, self-pay consultations have remained strong, and revenue has grown to GBP 174 million in H1 2022. This is only GBP 4 million short of the full year figure in 2019. And so we have effectively doubled the size of our self-pay business. You can also see the significant impact to admissions due to the Jubilee weekend and the significant -- and the subsequent increase in recovered infection rate and how volumes then recovered in August. One of the most encouraging features was, as we predicted, the recovery in PMI, the start of the year saw a very strong performance in new outpatient volumes and admissions. The improved volumes in PMI mean that revenue has grown to GBP 265 million, an increase of GBP 34 million against the prior year and GBP 18 million versus 2019. With PMI demand recovering strongly after pandemic, it is becoming more relevant to focus on private as a whole. This slide contains the equivalent chart for our total private business through to the end of August 2022. You can clearly see how strongly both outpatient consultations and admission volumes have performed for the year-to-date. It is worth highlighting that the admission numbers for 2022 are unadjusted for the fact that some procedures are now no longer conducted in main theater suites in order to create more capacity. Moving on to another key metric for our private business. Average revenue per case. At 2021 year-end, I reported that we've seen a material improvement in ARPC versus 2019 levels. ARPC consistently exceeded GBP 3,000 during the last 3 quarters of 2021, and this compared with ARPC of GBP 2,600 in 2019. It is encouraging that ARPC growth has continued in H1 2022. ARPC during the current period was GBP 3,197 which is 3% or GBP 96 higher than the last 6 months of 2021. I'll also highlight that the weighted average across all payroll groups after factoring in NHS has risen by 26.8% from H1 2019. This outcome is underpinned by our continuing focus on delivering a more complex mix of work and has also benefited from the increased control we have from our pricing tool. Lastly, turning to payor mix. This is a very important area of focus for us. As set out in the Capital Markets Day, we are targeting to stay in a range of 70% to 80%. The H1 '22 mix offset of 73% was well within this range and significantly up on 2019. The share of private work has been maintained during a period of high revenue growth against the backdrop of significant macroeconomic uncertainty and supports our view that our targeted customer base is financially resilient and that demand is strong. As I mentioned in my opening comments, the disruption and the additional cost from operating in a COVID environment have remained high. The reduction in H1 2022 EBITDA due to COVID specific issues amounted to GBP 25 million. This compares with GBP 53 million for all of 2021. As can be seen from this chart, which shows actual net cancellation rates since July 2021 to the end of August 2022. And the COVID infection rate per ONS data, COVID comes and goes in waves with the most recent peak taking place in July. A peak typically results -- peak typically results in approximately 4 to 6 weeks of operational disruption. The level of disruption in July was significantly higher as it took place during a popular holiday period which meant that it was difficult to backfill cancellations with other patients at short notice as they may not be as flexible. Equally, there are fewer consultants and staff members who can cover. As a result, the net COVID impact in July exceeds expectations by GBP 6 million. The business continued to work hard to recover. And as a result, volumes were strong in August. The fact that we continue to grow turnover and EBITDA despite these challenges demonstrates the underlying strength of the business. We are focused on improving margin and we are pleased with the progress we have made in an inflationary environment by growing margin from 16.1% to 17.7%. Some of you will recognize this slide from the Capital Markets Day, and it summarizes how we are going about achieving margin improvement. Taking each item in turn. In terms of organic growth, we have comfortably grown revenue beyond our medium-term CAGR target of 5% Private mix at 73% is well within the range of 70% to 80%. We have good pricing control over our private business, where we can set self-pay prices and our PMI contracts benefit from inflationary mechanisms. As for NHS, we have benefited from recent national price increases and also continue to be selective around the work we do to drive ARPC where we have capacity. Our savings program for 2022 is on track. This program will deliver savings of at least GBP 15 million in 2022 and a further GBP 15 million over the course of 2023 to 2024. Turning to inflation risk. This is being managed by the fact that elements of the group's cost base are fixed in the short to medium term. And of course, workforce is also highly relevant to the topic of inflation risk for both Spire and the wider industry. Notwithstanding this, this risk is being managed. The overall EBITDA result for H1 2022 was in line with our plan. We remain positive about the level of demand for our services and our ability in the short term to weather reasonable levels of inflationary risk. Subject to the timing and severity of any further COVID disruption we expect the coming months to trade a plan, and our overall guidance remains unchanged. Before handing back to Justin, I will close by saying we are very pleased with the progress we have made in the first 6 months of the year. Despite COVID headwinds, the group has performed really well. It has delivered significant revenue and EBITDA growth, improved margin made significant CapEx investment in our network reduced bank debt and maintained high levels of liquidity. Thank you. I'll now hand you back to Justin. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Harbant. I'll now touch on some of the operational highlights of H1. Quality and patient safety is our highest priority. And as I've mentioned, I'm pleased to see our investment continuing to be reflected in our ratings from regulators. 98% of our inspected hospitals and clinics are now rated good or outstanding by the Care Quality Commission or the equivalent in Scotland and Wales. Four hospitals were inspected during the period and all were rated good, including Spire Murrayfield, Wirral which was upgraded from requires improvement to good. We've just one hospice on that, Spire Alexandra in Kent, which is not rated good or outstanding. It hasn't been expected since 2016. And so the team hasn't had the opportunity to demonstrate to the CQC, the excellent work that they and their colleagues are doing there. We launched our sustainability strategy at a Capital Markets event in June, and we continue to roll out a range of initiatives which are helping us to move towards our goal of becoming net carbon zero by 2030. I'm pleased we were highly commended in the Business Green Leaders Award for net zero strategy of the Year in a field where we were up against Natwest, Heathrow and other big names. Due to the global volatility in the current energy market, our supply of electrical energy has moved from green to brown. This does not affect price as that's been hedged but it's a temporary setback to our progress in becoming carbon neutral. Alternative plans are being developed to keep on track, and we will communicate these at our next results meeting. This includes more sustainable energy. In Cardiff, for instance, we've just replaced a gas boiler with an efficient electric steam generator, saving 150 tonnes of CO2 a year in one site alone. We are in essence a people business and investing in our workforce is core to our success. Our learning and development programs remain strong, which is key if we are to recruit and retain talent in a market where there are national shortages of key professionals. Around 500 of our colleagues are apprentices. That's more than 5% of our permanent workforce. In total, more than 1,000 of our colleagues across the group have taken part in one of our learning and development programs this year. Our nurse apprenticeship program continues to grow as does our overseas nurse recruitment program. With the cost of living pressures on our colleagues, we believe it is right that we do all we can to support our teams. We recently announced a comprehensive pay award with a 5% uplift in the salaries of our colleagues from September of this year, a bit less for senior leaders and a move to ensure that all of our colleagues in and around London are paid at a minimum the London living wage. This means that everyone is paid at least a real living wage for their local area. For those in the lowest earning roles, this recent award is in addition to rises made earlier in the year, and some of the increases of more than 16% over the course of this year. Feedback from colleagues on this recent award has been positive. We've also announced the timetable for moving all colleagues on to a clearer and simpler salary framework linked to roll and skills by September next year. And we've redoubled our efforts to support the well-being of our colleagues. This, we believe, will help us to remain competitive by being supportive and so find and keep the best people in the sector at a time when clearly healthcare faces significant workforce pressure. We continue to invest in our estate with GBP 38.8 million invested over the period, in line with our 6% to 7% of revenue target, the aim is to maximize capacity and provide the most modern facilities and equipment for all our patients, consultants and colleagues as well as building out our digital transformation. Our investment program at Shawfair Hospital in Edinburgh continued, and we're now able to welcome overnight patients there. We also began work at Spire Yale where we're converting admin buildings into an outpatient center. And we're continuing to look for opportunities where we can create additional capacity by adapting existing estate into outpatient facilities and treatment rooms and our investment plans include the replacement of 6 CT and MRI scanners with the latest models this year. So turning now to a quick update on some other of the strategic developments through the first half of the year. Digital progress continued, including start of the rollout of automated letters, appointment reminders and welcome leaflets to patients via MySpire or on paper, if required. The project to enable clinical teams to access NHS Summary Care Records more easily, was successfully implemented and went live during the period. This is a major patient safety enhancement and efficiency step. I'd also like to touch on our exciting work to meet more of the needs of our patients on a wider target market by expanding our proposition and developing new services. We continue to build a platform to launch a pilot service for people with type 2 diabetes, which should go live before the end of the year. Our Spire GP service continues to thrive with volumes up 69% on H1 '21, and we're currently recruiting additional GPs to meet growing needs. In order for the service to expand and meet more of our patients' needs, the service, which is currently face to face only will be developed to include a digital arm. We've reached agreements in principle with a leading digital partner, and we hope to be able to say more later in the year. The aim is to develop an integrated offering whereby patients are going to swap between the existing face-to-face service and a new digital service dependent to whatever suits their needs. And as we've said, primary health care is an important part of our strategy to make it easier for patients to exit private health care, and we look forward to launching this enhancement for patients. We've now identified and are planning for the first 10 clinic sites. We're in a position to tender for new sites to anticipate the first two of these will open next year. We hope to roll this out at the pace of at least two or three each year as the program builds and we put in place the team to deliver this. So we're laying good foundations on which to build as we seek to become a provider of much more integrated health care. In conclusion, we are pleased with what we've achieved in H1 and the progress we're making on delivering against the strategy we set out at the Capital Markets event. There's much to look forward to in the remainder of '22, and we look forward to reporting back to you on this in 6 months' time. So thank you for listening. I'm now going to open the floor to questions. I'm going to invite John Forrest, our Chief Operating Officer; and Peter Corfield, our Group Commercial Director to join us for the Q&A. And I'm going to hand over to Angus to handle that. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [1] -------------------------------------------------------------------------------- (Operator Instructions) First question is from Kane Slutzkin at Numis. Kane, go ahead. -------------------------------------------------------------------------------- Kane Slutzkin, Numis Securities Limited, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [3] -------------------------------------------------------------------------------- Yes, we can. -------------------------------------------------------------------------------- Kane Slutzkin, Numis Securities Limited, Research Division - Research Analyst [4] -------------------------------------------------------------------------------- Love it. Congrats on a good result. Just a few questions, if I may. Just on average revenue per case, it's now as was saying 2017 higher than sort of pre-pandemic. Just wondering if you could comment on how much of that is price versus mix in acuity. I would imagine a lot of it is actually mix and acuity. But maybe just how sustainable is this in your mind? And then on PMI, have you guys got the data about sort of the demographics of the I guess, of that growth in PMI membership? Is it younger folk who may be less likely to claim. I'm just trying to think about how should we view this? Is this a long-term underpin to the business, albeit we've already seen a nice... -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [5] -------------------------------------------------------------------------------- Thank you very much, Kane. -------------------------------------------------------------------------------- Kane Slutzkin, Numis Securities Limited, Research Division - Research Analyst [6] -------------------------------------------------------------------------------- And then just finally -- Sorry, just saying just lastly, just on margins. You've obviously got a lot of moving parts, and clearly, the Delta could be sort of obviously still that remaining or lingering COVID costs. You mentioned in July unexpectedly but obviously billion at all as much better. Could you give us a sense for the August run rate? Or is it just similar to sort of what you saw for the first 6 months in terms of that rough sort of $4 million a month. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [7] -------------------------------------------------------------------------------- Okay. Okay. Thank you. So I'll start with ARPC, Harbant. The mix of what comprises the PC and where we're headed with them. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [8] -------------------------------------------------------------------------------- Yes. So we don't actually get information came in terms of the drivers behind ARPC at that level because any year-on-year comparison is pretty difficult. We start getting down into the detail on the services we provide. Clearly, as we said before, we do have good pricing control. So an element of it will come from pricing and equally, as we've said, we've got a good control over the types of work that we choose to do as well. So there's clearly going to be a blend, and I'm not going to go any further than that. In terms of sustainability of ARPC, again, we are pretty positive. We made some very similar statements at the beginning of this year in terms of the sustainability of our targeted market and also our ability to pick and choose the work we do, and I don't see any change in that in any day soon. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [9] -------------------------------------------------------------------------------- Peter, how much do we know about that composition of what's driving the P&I? -------------------------------------------------------------------------------- Peter Corfield, Spire Healthcare Group plc - Chief Commercial Officer [10] -------------------------------------------------------------------------------- In terms of composition, it's difficult to say in terms of what the books are doing for each individual insurer. But what I can say is that our outlook at the moment is very confident for PMI. We're seeing great outpatient volumes, as you've seen. That's converting well into -- delivery into the second half as well. And I expect that to continue. Talking to the insurers they're building up their books, and they're building up their books, not only in just corporate customers, but they're also building up in the SME market and also individual lives covered. So as I mentioned at the Capital Markets Day, we are in a unique space, which I haven't seen for a number of years, so the insurers are actually seeing growth in their portfolio. So no specific detail on the makeup of that, but certainly, the indicators I've got are confident and positive looking forward. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [11] -------------------------------------------------------------------------------- Thanks, Peter. And I think we should add that, that new contract with Bupa is working really well. We're working very well with Bupa. -------------------------------------------------------------------------------- Peter Corfield, Spire Healthcare Group plc - Chief Commercial Officer [12] -------------------------------------------------------------------------------- It is. And we've got some real opportunity for that in the second half and into next year as well. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [13] -------------------------------------------------------------------------------- Great. So as regards to August, we won't sort of comment overall in August. It's only just shut. But broadly, the business bounced back really well, as we've said. We put a lot of effort in to make sure August was a big month and momentum continues. Thank you, Kane. Hopefully, that answers your question. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [14] -------------------------------------------------------------------------------- Next question is from Grace Lee at Jefferies. -------------------------------------------------------------------------------- Grace Lee, Jefferies LLC, Research Division - Equity Associate [15] -------------------------------------------------------------------------------- I just want -- on margin, I think you missed on the margin question that Kane asked. But again, I'll just add my question on margin. For example, I can see you've highlighted private mix up to 73% first half and ARPC is materially higher versus in COVID. Can we just adjusting for that COVID with cost, can we sort of assume that EBITDA margin could have been potentially even higher in the Delta is inflationary sort of impacts? And how sustainable that margin are you sort of thinking going forward? This is my first question. And then second question on self-pay, you've done significant growth in first half. I just want to get a sense of like how some continued opportunity here. Can you share exit rate for July, for example, the phasing of that growth that you've seen in first half? -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [16] -------------------------------------------------------------------------------- Thank you, Grace. So first question, Harbant. Underlying margins the question of inflation. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [17] -------------------------------------------------------------------------------- Yes, that's fine. So Grace, the -- if you look at our reported EBITDA, as I said earlier, our underlying -- our margin has increased from 16.1% to 17.7%. You're quite right. If you look at the impact of COVID costs there is a significant upside opportunity because that 17.7% rises to 21.9%. Now in terms of margin development I'm not going to go any further than saying there's clearly opportunity there and we're targeting, we said at Capital Markets Day, a medium-term margin of greater than 21%. So in that context, I think there is -- I would view our performance in this half very positively with upside potential. In terms of other inflationary pressures, again, the message is consistent with what we said before. We're managing inflation risk. We are in a good place in terms of the contracts we've got in place on the procurement side. So we've got good cover in terms of fixed contracts in the short to medium term. Justin referenced the point around our commodity energy commodity hedge until October 2024. So again, we're shielded from that as well. They clearly are workforce-related pressures, but that's not unique to us. But in the round where we are is that we expect to whether what we described as reasonable rates of inflation. Clearly, the severity of those inflation rates and the period over which they are maintained will obviously potentially cause further challenges. But at the moment, those challenges are being managed. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [18] -------------------------------------------------------------------------------- It might be interesting to see if John is -- before I talk about the self-pay if John's got anything to add on whether it's essentially the operating environment behind the margin improvement, John. -------------------------------------------------------------------------------- John Forrest, Spire Healthcare Group plc - COO [19] -------------------------------------------------------------------------------- Thanks, Justin. I mean I just added it's a combination of all the benefits of what we're seeing as well in terms of the digitization. I mean that's helping us underpin reducing the variable labor and improving the overall efficiency of the business. The real strength that Harbant talked about in procurement is definitely helping us mitigate the cost of consumables -- nothing else to add. Thank you. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [20] -------------------------------------------------------------------------------- Thanks. And Peter, self-pay. -------------------------------------------------------------------------------- Peter Corfield, Spire Healthcare Group plc - Chief Commercial Officer [21] -------------------------------------------------------------------------------- I'm not going to give specific details about July and August, unfortunately. But I'm going to say that we are getting continued good inquiry volumes. Our visual inquiry volumes still remain ahead of last year. And our conversion rate from outpatient to admission still is stable. So the outlook for self-pay is good. It's positive. I don't expect significant growth half on the current run rate, but there is opportunity for growth. So outlook, good solid self-pay growth coming through as in line with the current levels. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [22] -------------------------------------------------------------------------------- Thank you, Peter. I think just to frame those two questions together, if you look at what I'm looking at, top line, is strong, and there's lots of opportunity. And it's also worth noting that NHS commissioning particularly through ERS, but also local requests is beginning to build as well. So top line, it really does like that demand, the unprecedented demand we talk about is coming through their self-pay wasn't a bubble. We've sustained those '21 levels, and we're ticking above them as well. So that looks strong. And look, we've worked hard to be in a position to optimize our ability to grow in self-pay. We work well with insurance. It's not a coincidence we're seeing a strong top line. If you look at the bottom line, many of these lines, we've got really strong smart procurement. There's a lot of inflation out there, but we're managing it really well. And then the key to the top line and the bottom line, therefore, is how we work with our colleagues and workforce. That's our big focus. It is really clear to hit the top line because we've better be able to maintain and increase capacity. And when COVID hit, it's largely a workforce issue, we've got people of sick and consultants are sick. And so to grow, it's about workforce. And in terms of cost management, all the work we've done and the establishment, et cetera, is to make sure that we can deliver safely and efficiently. So when you sort of cross the top of the bottom line of the equation, the future success that we're going to see is all down to how we work, support develop and grow our workforce colleagues. Grace, hopefully, that answers your questions. helpful. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [23] -------------------------------------------------------------------------------- Blanka, you had a couple of questions. Blanka Porkolab from Barclays. -------------------------------------------------------------------------------- Blanka Porkolab, Barclays Bank PLC, Research Division - Research Analyst [24] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [25] -------------------------------------------------------------------------------- Yes, we can. -------------------------------------------------------------------------------- Blanka Porkolab, Barclays Bank PLC, Research Division - Research Analyst [26] -------------------------------------------------------------------------------- Great. I have two, please. So the first one is, could you talk about COVID costs thus far and the split of this and to what extent you're able to backfill cancellations? How do you expect this to trend over time? And then the second one is, could you talk about the progression of the mix and when you expect NHS commissioning to take off and if this could drive a shift back towards NHS. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [27] -------------------------------------------------------------------------------- Okay. So COVID, I can answer a bit about how do we expect it to progress, which is we've no better idea than anybody else. There could be another way, there might not be. Omicron was different to other variants quite obviously, there was a lot of it. And we saw a lot of people who've not had it before, having it in July. That's why the state impact. So you can make a case for another wave, which would be tough for us, or you could make a case for there not being another wave. So that's why we've put a big question mark on the slide because we're not in the -- we don't have any more ability than anybody else to predict. In terms of the nature of the impacts, Harbant. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [28] -------------------------------------------------------------------------------- Yes. So, Blanka, as we said, the costs that we've incurred in the first half of the year was GBP 25 million and is directly linked to the costs that we described previously. So a chunk of that would have been down to absences and cancellations and the costs that the business has incurred as a consequence of that. And there's also a much smaller element which relates to other costs or what we describe as other COVID costs at year-end, if you recall, which talked about changes we made to the patient pathway, including testing and et cetera, which is a much smaller element and it's tracking with the comments that we made at that time. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [29] -------------------------------------------------------------------------------- Harbant, thank you, if I then take the point about NHS commissioning. So there is no doubt that there is more commissioning coming not the great big wave that perhaps people predicted, but it is strengthening and there is more need. And we've worked closely to make sure that it's the right sort of commissioning for us, orthopedics, et cetera. So our big challenge is we're coming into our really big months. And we've got plenty of private demand, and we've also got to find a way to accommodate that NHS demand as well. So there might be more of a shift towards NHS. I don't think that will be a dramatic feature in the second half of the year. But our really big challenge is to work out how we could further increase capacity to cope with both. I don't know if John or Peter have got anything to add to that overall observation. -------------------------------------------------------------------------------- Peter Corfield, Spire Healthcare Group plc - Chief Commercial Officer [30] -------------------------------------------------------------------------------- Nothing for me. I think it's spot on. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [31] -------------------------------------------------------------------------------- Does that answer your -- Sorry, John. -------------------------------------------------------------------------------- John Forrest, Spire Healthcare Group plc - COO [32] -------------------------------------------------------------------------------- No, I think you described it perfectly. We're just -- it's different in every one of our stores and we're balancing it on a daily basis. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [33] -------------------------------------------------------------------------------- Good morning, Miles. Miles Dixon from Peel Hunt. Please go ahead. I think you're on mute, Miles. -------------------------------------------------------------------------------- Miles Dixon, Peel Hunt LLP, Research Division - Analyst [34] -------------------------------------------------------------------------------- Thank you, Justin. Can you hear me now? -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [35] -------------------------------------------------------------------------------- Yes, we can. -------------------------------------------------------------------------------- Miles Dixon, Peel Hunt LLP, Research Division - Analyst [36] -------------------------------------------------------------------------------- Brilliant. I was just saying congrats on the results and nice see you back, Jitesh. But just 2 questions left from me. On the private patients, you talked at the CMD about the change in the socioeconomic group that's willing to use Spire -- is that now filtering down to the patients that are actually coming in the door? And secondly, Harbant, you've mentioned the macroeconomic backdrop and the markets that we've seen in the first half the success that you've had in paying down debt. Is this changing the way that you think about reinstating the dividend? -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [37] -------------------------------------------------------------------------------- Peter, so socioeconomic change in profile, what are we seeing? -------------------------------------------------------------------------------- Peter Corfield, Spire Healthcare Group plc - Chief Commercial Officer [38] -------------------------------------------------------------------------------- So answer, yes. I mean we continue to monitor that. And as I said at the Capital Markets Day, we are seeing a broader range of patients, and that's reflective in our results. But as I said, demand is strong, and that's converting well. So I'm very excited about what we're seeing in the top line. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [39] -------------------------------------------------------------------------------- And can I just add to that? Because obviously, the underlying question is what's the effect of the economic background and our patients on demand, and we are seeing a change. What we are seeing is patients are very demanding of us. If they're paying, they expect high standards of care. So I think the real challenge for us is to keep stepping up. It's why I keep focusing on those patient scores we're only going to be successful with us. We're also an outstanding experience because if you pay for it, you really do expect it to be outstanding. So again, where I'm sitting it's about continuing to drive excellence, not just clinical quality, but each bit of a journey, and this is where the digitization comes in. Because if we are honest, there are bits of our journey, which is still clunky. You can have to register more than once to different bits of a hospital and the digitization is about making sure that we can really deliver on the promise around the sort of experience you expect from private and people are demanding around that. Harbant, net-net, cash and dividend policy. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [40] -------------------------------------------------------------------------------- Yes. So as you just heard, Miles, we expect to be -- we expect demand to be strong for the foreseeable future. We still expect to be generating good levels of cash. We set out a very clear dividend policy at the Capital Markets Day. We did that intentionally clearly because we want to be transparent about how we make these decisions. And as we said in that policy, we'll assess how we do against the plan. We'll make that assessment as we get closer to the year-end. And we said in the slides at the time that we would consider a dividend payment in 2023. So that's still the time line that we're working towards. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [41] -------------------------------------------------------------------------------- Next question is from Charles Weston at RBC. Charles, please go ahead. -------------------------------------------------------------------------------- Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [42] -------------------------------------------------------------------------------- Congrats on the CQC results. Three topics, if I can, please. First of all, you said that you wouldn't be splitting out like-for-like versus mix on pricing. But perhaps you could for NHS in particular because that pricing is, I think, a bit more transparent. And you've seen increases on ARPC quite consistently now. Is there any reason we shouldn't continue to see progression there across all payer groups? Secondly, on volumes, self-pay and PMI volumes according to your chart, seen in line with 2021 for the last few months after the very strong growth we saw in the first few months. So could you just touch on like-for-like comparisons there? And how can we interpret that in terms of volume for H2 and H1 2023. And lastly, please. You mentioned the exceptional pay rise, which I calculated is worth perhaps roughly GBP 15 million. What's the total increase in staff costs almost on a like-for-like basis, sort of excluding hiring new staff through the year. You mentioned all sorts of different changes that you've made there. So I'd just like to get a sense of what the overall wage inflation is in the business from beginning to end of the year. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [43] -------------------------------------------------------------------------------- Right. Thanks, Charles. So can we start with the ARPC, future prospects and the NHS component, which is more transparent Harbant. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [44] -------------------------------------------------------------------------------- So the NHS piece, again, Charles, I'm not actually inclined to just share that level of detail. I think we already shared quite a lot of information in terms of ARPC and it's not my intention to add any more at this time. Fair enough. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [45] -------------------------------------------------------------------------------- I mean I think it is worth pointing out, however, but there have been NHS increases in tariffs, which I think between them constitute something like 3.2% since March. So that is clear, and that is published. Sorry to touch on those point. -------------------------------------------------------------------------------- Unidentified Company Representative, [46] -------------------------------------------------------------------------------- Yes. Just on the NHS, I suppose there are a couple of other factors when you look at the average price, which is also partially driven by the mix of products that we take, but also what sort of patients we're getting because if there's a higher acuity than what we'd actually get becomes -- this mix could have as much an impact as anything else that the NHS is driving. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [47] -------------------------------------------------------------------------------- Absolutely right. On volumes, I'll handle that. So I'm not saying that volumes are going to fly away in the final quarter. But the fact that, overall, they were flat during the period where for a lot of the time, we have 20% cancellations and then we're rebooking 10%. It's sort of the point I was making about the underlying robustness of the business. The fact that we managed to overall achieve between PMI and self-pay a flat performance during that period. First of all, it's tribute to my colleagues because and literally during that period sometimes there's nobody in bookings. So there's nobody on the sales team because we had so much COVID plus holidays. So I see it the way to interpret is we weathered quite a big disruption store and still came in up broadly flat. And as I said, to upside, but it's why we are sort of confident about the demand picture. And remember, by the way, none of those patients or few of them are lost, they're just getting rebooked. So that's how I answer that picture overall. That's how we do. I don't think get carried away, but that's essentially how to read that period as you look forward. And then third question, basically, the weighted -- the question, I think, is the weighted EBIT impact of weight cost after also our efficiency savings and digitization so a net impact which will become apparent in the full year numbers, but I don't know what we can say about that at this stage, Harbant? -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [48] -------------------------------------------------------------------------------- So what I would do, Charles, as I'd point you to the disclosures in the back of the resorts document, which contains information around both wage costs and FTEs, et cetera, and you can probably make your own judgment around that. As Justin said, more generally beyond that, we've also increased -- we're giving a company-wide increase of 5%, although it's restricted for most senior members of our team and there are some individuals who, as a consequence of earlier, increased during the year. I've got a blended increase of 16%. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [49] -------------------------------------------------------------------------------- So what I do know is in there is you'll see in clinical staff costs, they're down just a bit as a percentage versus 2021 despite all these various pressures. And despite the fact that within that, you've got quite a lot of absence cost from COVID and such. So obviously, we are net-net driving some efficiencies there. Now some of these pay rises feed through into the second half. But that's a number we look at very closely because, obviously, that drives a lot of our costs, and it's down slightly despite all of this versus 2021. So hopefully, Charles, that gives you some thoughts on those questions. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [50] -------------------------------------------------------------------------------- Moving now to David Adlington at JPMorgan. David, please go ahead. -------------------------------------------------------------------------------- David James Adlington, JPMorgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research [51] -------------------------------------------------------------------------------- Hope you can hear me. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [52] -------------------------------------------------------------------------------- We can. -------------------------------------------------------------------------------- David James Adlington, JPMorgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research [53] -------------------------------------------------------------------------------- Perfect. A few questions, please. So firstly, just in terms of the GBP 25 million hit from COVID in the first half, just wondering how much of that you're able to pass it out between patient cancellation because they've got COVID versus staff cancellations or absence because they had COVID. And this might be harder to answer, but how much of that -- those cancellations were because of asymptomatic patients who were tested and didn't even know they had it. Following on from that, I've seen some reports that the NHS might be considering dropping testing for COVID. Obviously, I would hopefully with the cancellations. Just wondered if you were to follow suit on that front. And then finally, just in terms of the change in ownership of your biggest shareholder, I just wondered if there are any thoughts or any feedback on what their plans for their stake might be? -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [54] -------------------------------------------------------------------------------- I'll answer the last one first. We'll have to ask them. They are a very supportive shareholder. We work closely with them. We share a lot of ideas. It's been really helpful. I think it works in both directions. So they're a supportive shareholder, but you'd have to ask some questions about the future. Just working backwards, John, do you want to talk about our current COVID policy? -------------------------------------------------------------------------------- John Forrest, Spire Healthcare Group plc - COO [55] -------------------------------------------------------------------------------- Yes, sure. So guidance in England changed on the first of September. Wales this week and Scotland is reviewing. So you're correct, David. Routine testing for patients prior to admission has now ceased across the NHS and in Spire. We updated our guidance in line with that change. In Scotland, we still have to test all patients pre-admission. We continue to test, as does the NHS, patients that are in high-risk groups. So that's somebody who, for example, have a planned stay in a critical care unit post operation or is having oncology treatment and has perhaps a lower immune system. So it is definitely, as you suggest, helping in September to allow us to backfill cancellations more quickly because it's one less hurdle we have to jump in terms of having a clear COVID test. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [56] -------------------------------------------------------------------------------- Thank you, John. So Harbant, the $25 million, the breakdown as far as we can give it. -------------------------------------------------------------------------------- Harbant Samra, Spire Healthcare Group plc - Group Financial Controller & CFO [57] -------------------------------------------------------------------------------- Yes. So if you recall, David, at the year-end, we broke it down into two categories effectively. One was other COVID costs. So I was saying earlier, I think in response to the question from Blanka that included costs relating to changes to the pathway or to safeguard the pathway. And then there were the most significant aspect was to do with absence or cancellation. We've not disclosed the split of the underlying root cause of what's given rise to that absence or cancellations over its consultant or patient driven, et cetera. And it's not our intention to go in at that level of detail. One thing I will confirm, as I said earlier in response to Blanka's question, the trajectory of the other COVID costs has followed the path that we predicted at the beginning of the year, it's much more stabilized and the piece in relation to absence in cancellations is the bit that's much more variable and dependent upon infection rates. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [58] -------------------------------------------------------------------------------- I think we can add totally. Staff illness was a particular problem in July because we track incidents in our staff versus the community. And in all previous waves, because there's been social distancing in the NHS and mask wearing and also inspire what you've seen is a lower incidence in colleagues than there isn't a community. This time, the two graphs caught up and went ahead. So essentially, that was a particular feature of July, which you could read has been good news because it means the vast majority of colleagues have now had it. But of course, we can't predict what the next variant may look like. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [59] -------------------------------------------------------------------------------- Victoria, Victoria Lambert at Berenberg. Please go ahead. -------------------------------------------------------------------------------- Victoria Lambert, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [60] -------------------------------------------------------------------------------- I just wanted to follow up on NHS commissioning. They gave some -- the update with the NHS action plan that using the private sector was a big part of that plan. It just doesn't seem like it's flowing through to the private hospitals yet, and there are 500,000 more people on the list from the beginning of the year. I'm just trying to get an understanding of like what's going on here? Are commissioners coming under more pressure to refer to the private sector. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [61] -------------------------------------------------------------------------------- There's a bit of -- you have to ask NHS, because we don't run it, and we do work closely with them. So I don't quite know why more isn't flowing through. Now I do think, by the way, more is going to flow through, right? Because there's always a lag effect between announcements and action, there's always a lag effect, right? The announcements are made long before the actions put in place typically. The place they're particularly focusing, where we've always focused is the electronic referral system. So rather than going through complex commissioning frameworks, they're focusing on ERS, where we are seeing growth and we're focused in particularly on orthopedics. And there has been an announcement about having an app where you can see how long waiting lists are in trust versus independent hospitals. And of course, app hasn't been built yet. But I think the general momentum over the next year will be for growth. Why it hasn't been more than that is the big unanswered question, of course, to which I don't have the answer. Relations are very positive, they're particularly positive on the ground and I think we will see more and our challenge will be to cope with that and the private demand. Peter, anything you'd add to that picture. -------------------------------------------------------------------------------- Peter Corfield, Spire Healthcare Group plc - Chief Commercial Officer [62] -------------------------------------------------------------------------------- The only thing I would say is that looking at actual referrals, the back at 2019 levels now and actually Orthopedics is ahead. So it is coming through, but I concur with Justin, I think we'll see more momentum on this as we move into the second half and into next year from NHS. Certainly, with my interactions with them, they're very keen to get moving. I'm very keen to get us to support them. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [63] -------------------------------------------------------------------------------- Does that answer your question? Victoria? Did you have another question? Or is that it? -------------------------------------------------------------------------------- Victoria Lambert, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [64] -------------------------------------------------------------------------------- No, that's it. Thank you. -------------------------------------------------------------------------------- Angus Prentice, Spire Healthcare Group plc - Interim Head of IR [65] -------------------------------------------------------------------------------- Just a reminder, if you do have a question, please place a name in the Q&A function. At this point, I think we've gone through all the questions I can see, Justin. -------------------------------------------------------------------------------- Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [66] -------------------------------------------------------------------------------- Okay. We'll wait a second. Let's see if anyone thank you very good questions and good discussion. So thank you. Anybody else with a question? I think that's -- thank you very much. Thank you for attending and listening. Thank you to the team presenting and again to the wider team. We will go back to the day job of patient care and delivery. Thank you very much.