Annual Financial Report and Notice of Meeting

RNS Number : 2177V

Spire Healthcare Group PLC

14 April 2016

 

Spire Healthcare Group plc

14 April 2016

Annual Report and Notice of Annual General Meeting

Spire Healthcare Group plc (the "Company") released its preliminary announcement of its annual results for the year ended 31 December 2015 ("Preliminary Announcement") on Thursday, 17 March 2016.

Further to that Preliminary Announcement, the Company confirms that its Annual Report and Accounts for the year ended 31 December 2015 ("2015 Annual Report"), 2016 Notice of Meeting and Form of Proxy are being posted to shareholders today.

The Annual General Meeting of the Company will take place at 11.00am on Thursday, 19 May 2016 at the offices of J.P. Morgan at 60 Victoria Embankment, London EC4Y 0JP.

Documents are available on the Company's website as follows:

2015 Annual Report:             www.spirehealthcare.com/AR2015

2016 Notice of Meeting:        www.spirehealthcare.com/Notice2016

In accordance with Listing Rule 9.6.1, the Company will submit its 2015 Annual Report and other shareholder documents to the National Storage Mechanism. These documents should then be available for inspection within two working days at www.hemscott.com/nsm.do.

The Appendix to this announcement contains information required for the purposes of compliance with DTR 6.3.5 (1) of the Disclosure and Transparency Rules, including a Statement of Directors' responsibilities This information is extracted, in full unedited text, from the 2015 Annual Report and should be read in conjunction with the Preliminary Announcement, which contained other information required by DTR 6.3.5 (1), released to the market on Thursday, 17 March 2016.

Enquiries:

Antony Mannion, Investor/Public Relations Director

Philip Davies, Deputy Company Secretary

Tel: [phone]

Appendix

Principal risks

The Group's principal financial and operational risks are taken from pages 50 to 55 of the 2015 Annual Report:

The Group's financial and operational risks, how they have changed and how they are managed are shown below.

	Risk Description and Impact	How we manage the risk
Availability of key medical staff Risk increased	Growing demand for healthcare, changes to the working requirements and a limited supply of appropriately qualified key medical staff, leads to a shortage of medical staff. Profitable growth, in line with the Group's strategy, requires an expansion of clinical services in hospitals, particularly including more complex surgical procedures and ongoing treatment of higher-risk patients, which could be impacted by a shortage of key medical staff. In order to expand our directory of services at hospital level, in line with our strategy, it is vital to have access to appropriately qualified, self-employed consultants. The market may see salary rates rise as competition for staff increases and, as a result, the Group's costs may increase and its profits may reduce.	The Board focuses on staff retention, evidenced by very high levels of staff satisfaction and, hence, low staff turnover, and its excellent reputation to attract new staff. Overseas recruitment of English-speaking nurses is being used to mitigate the UK shortage of trained nursing staff and to reduce the cost of using agency staff. The Group believes consultants are attracted by its advanced facilities, technology and equipment, excellent brand and reputation, the availability of a broad range of treatments, skilled nursing staff and medical support staff, and the efficiency of administrative support. The Group undertakes continuous investment in its equipment, facilities and services to retain high-quality consultants and also provides theatre capacity to new consultants. This is confirmed by high consultant satisfaction levels. An employee survey is conducted annually to establish employee satisfaction and, where appropriate, changes in working practices are made in response to the survey findings to aid retention.
Clinical care Risk remained stable	The Group's future growth depends upon its ability to maintain its reputation for high-quality services by meeting its quality goals. Poor clinical outcomes, negative media comment or patient, GP and/or consultant dissatisfaction could reduce the quality ratings, which could lead to a loss of patient referrals and lost earnings.	Spire Healthcare continually monitors its clinical standards, policies and procedures through the Board's Clinical Governance and Safety Committee. During 2015, effective management information and associated reporting have been developed and are now provided to the Executive Committee on a regular basis for greater transparency. A number of key performance indicators are used in the assessment of clinical standards and these may be found in the Clinical review. The Group reviews and maintains insurance to mitigate the possibility of a major loss. Adequacy of cover is reviewed annually with the Group's brokers.
Macroeconomic conditions Risk remained stable	Approximately 67% of the Group's revenue is dependent on private patients having private medical insurance (PMI), paid by their employer or paid by the individual, or being able to afford its services (Self-pay). In an economic downturn, the number of insured individuals falls with the level of employment and individuals have reduced real income to fund insurance or Self-pay for procedures. This would have an adverse effect on the Group's business, the results of its operations and prospects.	The Board manages this risk by regularly reviewing market conditions and economic indicators to assess whether actions are required. As successfully employed in the recent economic downturn, if the private market contracts, the Group can try to reduce costs and future investment to improve profit and cash flow, and may be able to offer the released capacity to the NHS at its lower tariff, reducing the impact on profit.
Government policy Risk increased	Change in the medium-term public funding of NHS services provision, and/or the prioritisation of this funding to particular service lines over time (elective healthcare, A&E, community care, etc.), could adversely reduce the flow of NHS patients to Spire Healthcare. Changes in the service level requirements for providers of NHS services, and service level commitments to members of the public served by the NHS, could adversely impact the attractiveness of privately funded treatment. Changes in fiscal policy could increase the burden of welfare resulting in a reduction of NHS-funded options. A fundamental change in the tariff structure (pricing arrangements) associated with the provision of services to the NHS could result in reduced access to patients, reduced tariffs, or reduced prices leading to reduced revenues and/or margins.	The Group believes that the private sector has become a fundamental partner of the NHS across the UK. The continued use of private facilities is, in Spire Healthcare's view, the best way to meet the challenges facing the NHS, particularly as there is limited capacity within the NHS to take back work currently undertaken by the private sector. The Group's service levels are confirmed by regular surveys of patients, GPs and consultants, which provide ongoing feedback to ensure NHS requirements (whether as providers or as commitments to its patients) are met. In addition, the Board regularly reviews the competitiveness of its patient offering (both NHS and private patients). The Board continually monitors government policy, NHS requirements and associated tariff structures to consider the need for cost and/or investment reduction, whether in the short, medium or long term.
Compliance with laws, regulations and other applicable requirements Risk remained stable	The Group operates in a highly regulated environment, including complying with the requirements of, for example, the CQC, Monitor and the CMA. Failure to comply with laws, regulations or regulatory standards may expose the Group to patient claims, fines, penalties, damage to reputation, suspension from the treatment of NHS patients, loss of hospital license and loss of private patients, such that the Group may not be able to operate one or more of its hospitals, causing a significant reduction in profit. The CQC has initiated its new inspection regime which assesses and rates hospitals and makes these results publicly available. If a hospital fared badly in one of these inspections, or a process embedded throughout the Group was considered unacceptable it could result in one or many hospitals being assessed as 'Inadequate' which could have significant regulatory and reputational impacts. In addition, the Group could fail to anticipate legal or regulatory changes leading to a significant financial or reputational impact.	The Group is in the process of strengthening its Group-wide risk management framework (and associated policies and procedures) to ensure that risks are mitigated as far as possible, the executive management team has appropriate visibility to ensure robust decision making, and the Group has the ability to monitor and react to the changing regulatory framework of a listed company in the healthcare sector. The Group has a significant centralised clinical team which assists hospitals in establishing and maintaining a high level of clinical performance. Emerging legal or regulatory changes are monitored by the Board, the Executive Committee and the Safety Quality and Risk Committee, in addition to consultations with external advisers and industry briefings.
Competitor challenge Risk remained stable	Spire Healthcare operates in a highly competitive market. New or existing competitors may enter the market of one or more of our existing hospitals, or offer new services. The potential impact would be the loss of market share due to a new competitor and reduced profitability and cash flow.	The Group maintains a watching brief on new and existing competitor activity and retains the ability to react quickly to changes in patient and market demand. The Group considers that a partial mitigation of the impact of competitor activity is ensured by providing patients with high-quality care and by maintaining good working relationships with GPs and consultants.

 

Risk Theme	Risk Description and Impact	How we manage the risk
Insurance Risk remained stable	Healthcare companies, including Spire Healthcare, are sometimes subject to actions alleging negligence, malpractice and other legal claims that may involve large potential damages and significant defence costs, whether or not the defendant is ultimately found liable. The Group could be subject to litigation for actions by third parties or may be found liable for damages which may not be covered by its insurance policies, if the claims are in excess of cover or claims are not covered by the Group's insurance due to other policy limitations or exclusions or where it has failed to comply with the terms of the policy. The Group's insurance premiums may increase and, if there is a significant deterioration in its claims experience, insurance may not be available on acceptable terms.	The Group holds third-party liability insurance to partially cover patient, third-party and employee personal injury claims, and is partially self-insured up to predetermined levels, above which its third-party liability insurance applies. The Group reviews and maintains insurance adequacy of cover annually with the Group's brokers.
Cybersecurity Risk increased	The Group's information technology platform supports, among other things, management control of patient administration, billing and financial information and reporting processes. In common with other corporate organisations, the Group faces the challenges of a continually evolving external cyber threat landscape, and could become vulnerable to computer viruses, break-ins and similar disruption from unauthorised tampering. The Group's business could be disrupted if its information systems fail or if its databases are breached, destroyed or damaged. This could cause financial and reputational impacts.	The Group has a three-year IT plan outlining the strategy developed in order to support the business. There are forums which relevant business and IT stakeholders attend to discuss the IT plan and projects, including monthly meetings to discuss changes to SAP enhancements and NHS developments and senior leadership team meetings held quarterly. The Group's Information Technology Continuity Plans continue to be reviewed, updated and tested to ensure relevance.
Concentration of PMI market Risk increased	The PMI market is concentrated, with the top four companies - Bupa, AXA, Aviva and VitalityHealth (formerly PruHealth) - having a market share of over 85%. Loss of an existing contractual relationship with any of the key insurers could significantly reduce revenue and profit. Further consolidation of the PMI market may lead to additional restrictions which could decrease profitability or increase the consequential loss of a partner.	The Group works hard to maintain good relationships and a joint product/patient health offering with the PMI companies, which, in the opinion of the Directors, assists the healthcare sector as a whole in delivering high-quality patient care. The Board believes continuing to invest in its well-placed portfolio of hospitals should provide a natural fit to the local requirements of all the PMI providers. The Group has entered into contracts to continue the good relationships for the long-term and to reduce the Group's risk.
Investment plans and execution Risk increased	The capital investment programme (which includes IT system developments, and the construction of two new hospitals) for the Group consists of the largest number of parallel developments undertaken to date. With any major project, there are risks such as major cost overrun or substantial delay in delivery which could impact upon the expected returns, the Group's planned profit growth and future cash flow.	The Group conducts a detailed financial and operational appraisal process to evaluate the expected returns on capital during the evaluation phase of the project. Robust project management is employed throughout the project, from the evaluation, to the bid process, agreement of contract terms and conditions, cost forecasting, as well as regular monitoring and management of progress. Regular reporting of all significant projects to the executive sponsor and the Board is provided.

 

Risk Theme	Risk Description and Impact	How we manage the risk
Liquidity and covenant risk Risk remained stable	The Group may have insufficient liquid resources to meet its financial liabilities as they fall due, or breach financial covenants linked to its borrowings. Failure to meet its obligations or covenants would have a substantial adverse effect on the Group's reputation and may lead to borrowings becoming repayable earlier than contracted for.	The Group actively monitors and manages its liquid asset position, its financial liabilities falling due and the cover against its loan covenants. Forward projections show that the Group can meet its liquidity requirements from existing liquid assets and maintain its loan covenant obligations, even in adverse scenarios. In addition, there is a committed, undrawn revolving credit facility of £100 million available to meet liquidity needs, if required. In an adverse scenario, capital expenditure could be cut back to reduce the demand on liquidity.

Statement of Directors' responsibilities

As set out above, the following responsibility statement is repeated here solely for the purpose of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from page 97 of the 2015 Annual Report.  Responsibility is for the full Annual Report not the extracted information presented in this announcement or the Preliminary Announcement.

The Directors are responsible for preparing the Annual Report and Accounts for the year ended 31 December 2015, including the Consolidated financial statements and the Parent Company financial statements, Directors' report, including the Directors' Remuneration Report and the Strategic Report in accordance with applicable law and regulations. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with IFRS, as adopted by the EU.

Company law requires the Directors to prepare such financial statements for each financial year. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company on a consolidated and individual basis, and of the profit or loss of the Company on a consolidated basis for that period.

In preparing these financial statements, the Directors are required to:

·    select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

·    make judgements and estimates that are reasonable and prudent;

·    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·    provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the EU is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's and Company's financial position and financial performance;

·    state that the Group's and Company's financial statements have complied with IFRS as adopted by the EU, subject to any material departures disclosed and explained in the financial statements; and

·    prepare the financial statements on a going concern basis, unless it is not appropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, and disclose, with reasonable accuracy at any time, the Company's financial position and enable them to ensure compliance with the Companies Act 2006. They are also responsible for safeguarding the Company's assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Each of the Directors, whose names and functions are listed on pages 58 and 59, confirms that:

·    to the best of their knowledge, the Consolidated financial statements and the Parent Company financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company on a consolidated and individual basis;

·    to the best of their knowledge, the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Company on a consolidated and individual basis, together with a description of the principal risks and uncertainties that it faces; and

·    they consider that the Annual Report and Accounts for the year ended 31 December 2015, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Related party transactions

The following description of related party transactions is extracted from note 33 on pages 135 and 136 of the 2015 Annual Report.

33. Related party transactions

Transactions

Group companies entered into the following transactions:

(£ million)
Counterparty	Nature of transaction	2015	2014
Former parent undertakings:
Cinven Limited	Monitoring fees*	-	0.4
Rozier Finco Limited	Interest payable	-	45.1
Rozier Finco 2 Limited	Interest payable	-	9.1
Other related party:
Management team of the Group	Interest payable	-	0.3

*     In respect of the monitoring of the performance of the Group on behalf of Cinven Funds prior to IPO.

Amounts owed to related parties

As part of Admission, the loans due to former parent undertakings and the management team were either capitalised or repaid in the prior year. Those loans carried interest of 12.0% per annum.

Transactions with key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. They include the Board and Executive Committee, as identified on pages 58 to 61.

Compensation for key management personnel is set out in the table below:

(£ million)	Notes	2015	2014
Short-term employee benefits		2.6	17.3
Retirement benefits		0.4	0.3
Share-based payments	28	0.7	2.8
Total		3.7	20.4

For 2014, included within short-term employee benefits were IPO bonuses of £14.2 million.

Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 76 to 93.

 

END

 

 

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